Debunking Conventional Wisdom About Doing Business In China

A group of students studies on the campus of San Francisco State University in San Francisco, California June 30, 2009. State officials are facing a midnight deadline to close a $24.3 billion budget deficit, and college students would be among those receiving IOU's for loans if the deadline is not met.
REUTERS

One of the things I do with new consulting clients is give them a crash course on what to expect in China, especially if they have never been. Invariably, I get odd questions: “Do Chinese wives have to walk three steps behind their husbands?” “Will monkey brain be served at our business dinner -- and is it rude if I don’t eat it?” “Should I not openly disagree with our Chinese partner so he can save face?” Though I have eaten some strange things -- beaver, donkey testicles, scorpion, silkworms -- I’ve never come across monkey brain. Other more conventional questions concerning guanxi, socializing, Confucianism, and trust come up as well.

My guess is that these queries came from embellished anecdotes, old Charlie Chan movies, or, even worse, from books written about China in the 1980s and 90s. After so many of these entertaining but disturbing questions, I want to finally set the record straight on these folklores. I’m going to debunk many of the half-truths and sweeping generalizations about China that oversimplify, trivialize, and don’t do justice to how business is really conducted in China.

Guanxi: It’s Not That Important

The term guanxi refers to a person’s connections. In particular, it refers to people in influential or higher positions who would be willing to perform favors for you -- knowing, however, that these favors will undoubtedly be reciprocated sometime in the future. Expressions like “I owe you one,” or “I’ll scratch your back if you scratch mine,” are synonymous with guanxi.

The cultural difference is in the degree of the favors. In the West, we tend to use guanxi for something special or out of the ordinary, such as securing hard-to-get basketball tickets from an old friend, borrowing money from a family member, or asking a business associate for an interview for your son or daughter. But in China, guanxi was a matter of life and death. The Chinese, having lived in poverty for the past 2,000 years, used guanxi to get the basic necessities of life: food, clothing, and shelter. Without guanxi, you were alone, out to fend for yourself.

During Communism, anything that was in short supply or that needed an official’s signature -- entrance into college, a train ticket, or a job -- was obtained with guanxi. Having a relative or friend in high places meant a ticket to better government housing, a higher paying job, and access to Friendship Stores, where you could buy hard-to-find goods, such as Cadbury chocolates and American-made soap.

Similarly, foreign companies in the 1980s and 90s ran their China businesses based on guanxi rather than good, solid business practices. This is precisely why only the multinational organizations, or MNOs, could lay claim to China at that time. Besides having money, they nurtured and captured guanxi over periods of five to 10 years before seeing any concrete progress. Relationship building with the Communist officials who wielded all the business power at that time was slow and cumbersome.

Things are very different in China today. Guanxi just isn’t that important anymore, or at least it is equal in importance to having connections in the West. The higher standards of living for millions of Chinese have reduced the necessity for guanxi.

What lesson is there for small and medium-sized businesses, or SMBs? Don’t let anybody tell you that guanxi is an absolute must for doing business in China. Of course, it won’t hurt to have guanxi, and you might get things done faster or gain better contacts and meetings, but just like in the United States, diligence and tenacity will still pay off. At the end, the forces of business -- product, price, quality, and competition -- along with hard work, will decide your fate in China.

Don’t Lose Face Over Mianzi

Mianzi, or “face,” is a very important concept for the Chinese. It’s your reputation and how people look at you. There are expressions in Chinese that allow a person to give, lose, save, or gain mianzi. Mianzi is not difficult for foreigners to understand, as we are keenly aware of our own (and our colleagues’) reputations. English expressions like “making me look bad” or “showing me off” carry the same meanings as mianzi. Mianzi, however, takes on much more importance for the Chinese, as they see it as one of the major focal points in any business meeting or relationship. For Westerners, mianzi takes a secondary position; it is not something they really think about once a meeting or relationship commences.

Don’t get so immersed in mianzi that it takes away from your immediate purpose and goals. Don’t be somebody you’re not. It’s difficult to act Chinese, and the reality is that the Chinese don’t expect you to act Chinese either. Be yourself, be polite, and be mindful of respecting your Chinese partner just as you do partners in the U.S. But also don’t shy away from asking tough questions, cutting a meeting short, or abruptly ending a relationship. The Chinese will do the same to you.

Drinking And Socializing

Is all this drinking, eating, and singing absolutely necessary? Will the business relationship be affected if you don’t attend these events? Conventional wisdom says yes. Most experts and books about China preach that socializing creates the bond and trust in the relationship; for the Chinese, the everlasting friendship developed over these social activities is worth more than any signed contract one could ever hope for. For MNOs and their executive management, I agree the entertainment activities are a must.

The foreign MNOs are depending upon the Chinese government or state-owned company for favorable tax status or entry into a previously closed market or industry. The large state-owned enterprises and government ministries have already preordered the dishes for the banquet, which sometimes takes days to prepare. The executives attending are probably old-school traditionalists who still value these social events. These social events have become habit for them, and any cancelation could be viewed as a snub and sign of disrespect.

The situation is quite different for SMBs. I have yet to see a situation in which foreigners were refused business because they declined a dinner invitation or skipped the “bottoms up” drinking competition. The bottom line? Making money. The Chinese will do business with you only if profits are attainable, not because you can sing Frank Sinatra’s “My Way” in perfect pitch.

They Say Business Takes Time In China

On the contrary, the pace of business in China moves at light speed, many times faster compared to the West. The Chinese are in a rush to get rich. They want your purchase orders quickly. They want your products shipped right away. They want to make money before some intervening force -- market conditions, the government, or the police -- impedes their stop-at-nothing mission. I have witnessed intricate steel molds that would have taken months in the States, made in a week; examined prototype medical products crafted by hand only days after the manufacturer received the drawings; and signed contracts after just a few hours of negotiations. The pace of business in China is like no other I have seen in other countries.

Business takes time in China only for foreigners. Translation will easily double or triple the conversation time. Cultural differences can spur misunderstandings, lengthening business dealings by weeks if not months. And time differences turn simple, mundane tasks -- waiting for e-mail replies, setting up conference calls, sending samples -- into complicated, painful, laborious tests of one’s patience. On top of that, foreigners sometimes treat their China business as an “out of sight, out of mind” hobby, one in which they are only engaged when in China. Back at home, they tend to other important matters, and thus ignore and delay their Chinese business even further.

Stanley Chao is author of the book “Selling to China: A Guide to Doing Business in China for Small- and Medium-Sized Companies.”He has worked in China for more than 20 years, and currently serves as managing director for All In Consulting, assisting companies in their Asia and China business strategies.He speaks Mandarin and Japanese.